[Federal Register Volume 63, Number 126 (Wednesday, July 1, 1998)]
[Notices]
[Pages 36003-36007]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-17473]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23284; 812-10620]


PaineWebber America Fund et al.; Notice of Application

June 24, 1998.
AGENCY: Securities and Exchange Commission (``Commission'' or ``SEC'').

ACTION: Notice of application for an order under sections 6(c) and 
17(b) of the Investment Company Act of 1940 (the ``Act'') for an 
exemption from sections 17(a) and (e) of the Act, and under section 
17(d) of the Act and rule 17d-1 under the Act to permit certain joint 
transactions.

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SUMMARY OF APPLICATION: Applicants request an order to permit certain 
registered investment companies to use cash collateral from securities 
lending transactions and uninvested cash to purchase shares 
(``Shares'') of a private investment company (``New Fund'') advised by 
Mitchell Hutchins Asset Management Inc. (``Mitchell Hutchins''); 
PaineWebber Incorporated (``PaineWebber'') and Mitchell Hutchins to 
accept fees from certain other registered investment companies that are 
affiliated persons solely because they hold 5% or more of the Shares of 
the New Fund (the ``Other Funds''); and PaineWebber and certain 
affiliated broker-dealers to borrow portfolio securities from certain 
affiliated registered investment companies and to receive brokerage 
commissions from, and to engage in principal securities transactions 
with, the Other Funds.

APPLICANTS: PaineWebber; Mitchell Hutchins; PaineWebber America Fund, 
PaineWebber Cashfund, Inc., PaineWebber Investment Series, PaineWebber 
Managed Assets Trust, PaineWebber Managed Investments Trust, 
PaineWebber Managed Municipal Trust, PaineWebber Master Series, Inc., 
PaineWebber Municipal Series, PaineWebber Mutual Fund Trust, 
PaineWebber Olympus Fund,

[[Page 36004]]

PaineWebber Financial Services Growth Fund Inc., PaineWebber RMA Money 
Fund, Inc., PaineWebber RMA Tax-Free Fund, Inc., PaineWebber Securities 
Trust, Mitchell Hutchins Series Trust, Strategic Global Income Fund, 
Inc., 2002 Target Term Trust Inc., All-American Term Trust Inc., Global 
High Income Dollar Fund Inc., Global Small Cap Fund Inc., Investment 
Grade Municipal Income Fund Inc., Insured Municipal Income Fund Inc., 
Managed High Yield Fund Inc., PaineWebber Municipal Money Market 
Series, PaineWebber Investment Trust, PaineWebber Investment Trust II, 
Liquid Institutional Reserves, PaineWebber PACE Select Advisors Trust, 
PaineWebber Index Trust, Managed High Yield Plus Fund Inc., Mitchell 
Hutchins Institutional Series (collectively, the ``Affiliated Funds''), 
and any other registered investment company, or series thereof, which 
currently is or in the future may be advised by Mitchell Hutchins or 
PaineWebber, or any entity controlling, controlled by, or under common 
control with PaineWebber or Mitchell Hutchins,\1\ that may purchase 
Shares of New Fund; and any Other Fund.

    \1\ All existing Affiliated Funds that currently intend to rely 
on the order have been named as applicants. Any other existing or 
future Affiliated Funds that may rely on the order in the future 
will do so in accordance with the terms and conditions in the 
application.
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FILING DATES: The application was filed on April 17, 1997. Applicants 
have agreed to file an amendment, the substance of which is 
incorporated in this notice, during the notice period.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on July 20, 1998, 
and should be accompanied by proof of service on the applicants, in the 
form of an affidavit or, for lawyers, a certificate of service. Hearing 
requests should state the nature of the writer's interest, the reason 
for the request, and the issues contested. Persons who wish to be 
notified of a hearing may request notification by writing to the SEC's 
Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549. 
Applicants, 1285 Avenue of the Americas, New York, New York 10019.

FOR FURTHER INFORMATION CONTACT: Brian T. Hourihan, Senior Counsel, at 
(202) 942-0526, or Mary Kay Frech, Branch Chief, at (202) 942-0564 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee from 
the SEC's Public Reference Branch, 450 Fifth Street, NW, Washington, DC 
20549 (tel. (202) 942-8090).

Applicants' Representations

    1. The Affiliated Funds are registered under the Act as either 
closed-end or open-end management investment companies. PaineWebber and 
Mitchell Hutchins, each an investment adviser registered under the 
Investment Advisers Act of 1940 (``Advisers Act''), serve as investment 
adviser and sub-adviser, respectively, to PaineWebber Cashfund, Inc., 
PaineWebber RMA Money Fund, Inc., PaineWebber RMA Tax-Free Fund, Inc., 
PaineWebber Managed Municipal Trust, PaineWebber Municipal Money Market 
Series, and Liquid Institutional Reserves. Mitchell Hutchins is a 
wholly-owned subsidiary of PaineWebber and serves as investment adviser 
to the remaining Affiliated Funds. Both PaineWebber and Mitchell 
Hutchins are registered as broker-dealers under the Securities Exchange 
Act of 1934. PaineWebber, Mitchell Hutchins, and any other broker-
dealer controlled by or under common control with PaineWebber are 
referred to as ``Affiliated Broker-Dealers.''
    2. Each Affiliated Fund is permitted under its investment 
objectives, policies, and restrictions to lend its portfolio 
securities. PaineWebber has been authorized by the board of directors/
trustees of each Affiliated Fund (the ``Board'') to act as securities 
lending agent for the Fund. The PaineWebber personnel providing day-to-
day lending agency services to the Affiliated Funds do not provide 
investment advisory services to the Funds, or participate in any way in 
the selection of portfolio securities or other aspects of the 
management of the Funds. In addition, depending on the particular 
Affiliated Fund, PaineWebber's activities as lending agent are 
conducted under the supervision of investment management personnel of 
the Affiliated Fund's investment adviser, who are not in any manner 
involved in PaineWebber's lending agency operations. PaineWebber also 
provides securities lending agency services to various other clients, 
including the Other Funds.
    3. PaineWebber, as lending agent for the Affiliated Funds, is 
responsible for soliciting borrowers of portfolio securities 
(``Borrowers''), monitoring daily the value of the loaned securities 
and collateral, and performing other administrative functions. 
PaineWebber, under the supervision of each Affiliated Fund's investment 
adviser enters into loans with pre-approved Borrowers on terms that 
have been pre-approved by the Fund's investment adviser. At present, 
the Affiliated Funds may not lend portfolio securities to PaineWebber. 
Applicants request that the Affiliated Funds, as well as the Other 
Funds, have the flexibility to lend their securities to any Affiliated 
Broker-Dealer.
    4. Each Borrower of an Affiliated Fund's portfolio securities is 
required to tender collateral to the Fund's custodian in the form of 
cash, U.S. Government securities, or irrevocable letters of credit. 
When the collateral consists of U.S. government securities or letters 
of credit, PaineWebber typically negotiates on behalf of the Affiliated 
Fund a lending fee to be paid by the Borrower to the Affiliated Fund. 
Alternatively, when the collateral consists of cash (``Cash 
Collateral''), the Affiliated Fund, instead of receiving a separate 
lending fee, typically receives a portion of the return earned on the 
investment of the Cash Collateral by or under the direction of the 
Fund's investment adviser. For its services as lending agent to the 
Affiliated Funds, PaineWebber is permitted to receive fees based on a 
share of the revenue generated from securities lending transactions for 
the Affiliated Funds.\2\
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    \2\ See PaineWebber America Fund, et al., Investment Company Act 
Release Nos. 22541 (March 4, 1997) (notice) and 22594 (Apr. 1, 1997) 
(order).
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    5. Affiliated Funds and Other Funds may have uninvested cash 
(``Uninvested Cash'') on hand from a variety of sources. Uninvested 
Cash may result from dividend or interest payments, unsettled 
securities transactions, reserves held for future investments, 
scheduled maturity of investments, liquidation of portfolio securities, 
as well as cash received from new investors.
    6. Currently, the Affiliated Funds invest their Cash Collateral and 
Uninvested Cash in short-term money market instruments. Applicants 
propose to create the New Fund to serve as an alternative investment 
option for the Affiliated Funds, the Other Funds, and other clients of 
PaineWebber and Mitchell Hutchins for the investment of Cash Collateral 
and Uninvested Cash. The New Fund may be organized as a New York or 
Delaware business trust or

[[Page 36005]]

limited liability company and will be comprised of one or more separate 
investment series. The New Fund will operate as a private investment 
company in reliance on section 3(c)(7) of the Act. The New Fund will 
offer daily redemption of its shares at the current net asset value per 
Share. The New Fund will not impose any sales load, redemption or 
asset-based distribution fees. By investing in the New Fund, the 
Affiliated and Other Funds anticipate that they will be able to lower 
transaction costs, increase liquidity, achieve greater diversification, 
and enjoy greater returns in connection with their investment of Cash 
Collateral and Uninvested Cash.
    7. Applicants intend to operate the initial investment series of 
the New Fund as a money market portfolio that values its securities 
based on the amortized cost method and complies with rule 2a-7 under 
the Act (``Money Market Series''). Future investment series of the New 
Fund could operate as Money Market Series, as well as portfolios which 
invest in high quality securities but with longer maturities or 
different quality standards. Any Affiliated or Other Fund that complies 
with the requirements of rule 2a-7 under the Act will invest only in a 
Money Market Series.
    8. Mitchell Hutchins or PaineWebber may serve as Trustee to the New 
Fund. Mitchell Hutchins will act as investment adviser to the New Fund. 
For acting as investment adviser, Mitchell Hutchins will receive an 
advisory fee from the initial series of the New Fund, but will waive 
its advisory fees for any Affiliated Fund to the extent necessary to 
avoid a duplication of advisory fees for the Affiliated Fund. In 
addition, PaineWebber, Mitchell Hutchins, or an affiliated person may 
provide administrative, accounting, transfer agent and other services 
to the New Fund and receive reasonable compensation for providing the 
services.

Applicants' Legal Analysis

A. Sections 17(a), 17(b), and 17(d), and Rule 17d-1

    1. Sections 17(a)(1) and 17(a)(2) of the Act make it unlawful for 
any affiliated person of a registered investment company, or any 
affiliated person of the affiliated person, acting as a principal, to 
sell any security to, or purchase any security from, the investment 
company. Section 17(a)(3) of the Act makes it unlawful for any 
affiliated person of a registered investment company or any affiliated 
person of the affiliated person, acting as principal, to borrow money 
or other property from the investment company. Section 17(d) of the Act 
and rule 17d-1 under the Act prohibit any affiliated person of or 
principal underwriter for a registered investment company or any 
affiliated person of the affiliated person or principal underwriter, 
acting as principal, from effecting any transaction in connection with 
the any joint enterprise or other joint arrangement or profit sharing 
plan in which the investment company participates, unless an 
application regarding the joint transaction has been filed with the 
Commission and granted by order.
    2. Section 2(a)(3) of the Act defines an ``affiliated person'' of 
another person to include any person directly or indirectly owning, 
controlling, or holding with the power to vote, 5 percent of more of 
the outstanding voting securities of the other person, as well as any 
person directly or indirectly controlling, controlled by, or under 
common control with, the other person; and in the case of an investment 
company, its investment adviser. Section 2(a)(9) of the Act defines 
``control'' to mean the power to exercise a controlling influence over 
the management or policies of a company.
    3. The Affiliated Funds and New Fund may be deemed affiliated 
persons because they are advised by Mitchell Hutchins or PaineWebber. 
Accordingly, the sale or redemption of Shares of the New Fund by the 
Affiliated Funds may be prohibited under sections 17(a)(1) and 
17(a)(2). Moreover, by owning more than 5 percent of the New Fund's 
Shares, an Other Fund may be deemed to be an affiliated person of the 
New Fund and thus subject to the same prohibitions. Applicants also 
state that the Affiliated Funds and the Other Funds by purchasing and 
redeeming Shares of the New Fund, PaineWebber and Mitchell Hutchins by 
acting as investment adviser or sub-adviser to the New Fund, 
PaineWebber by acting as lending agent for the Affiliated and Other 
Funds, and PaineWebber or Mitchell Hutchins by serving as Trustee and 
providing other services to the New Fund, may be deemed participants in 
a joint transaction under section 17(d) of the Act and rule 17d-1 under 
the Act.
    4. Sections (17(a)(1) and 17(a)(2) also may prohibit the Affiliated 
Broker-Dealers, acting as principal, from selling securities to or 
purchasing portfolio securities from the Other Funds. Similarly, 
section 17(a)(3) may prohibit an Affiliated Broker-Dealer from being a 
Borrower of portfolio securities of the Affiliated and Other Funds. 
Applicants also believe that the proposed lending of portfolio 
securities by the Affiliated and Other Funds to the Affiliated Broker-
Dealers may be deemed to involve a ``joint enterprise or joint 
arrangement or profit-sharing plan'' within the meaning of section 
17(d) and rule 17d-1.
    5. Section 17(b) of the Act authorizes the Commission to exempt a 
transaction from section 17(a) if the terms of the transaction, 
including the consideration to be paid or received, are reasonable and 
fair and do not involve overreaching on the part of any person, the 
transaction is consistent with the policy of each registered investment 
company, and the general purposes of the Act. Section 6(c) of the Act 
authorizes the Commission to exempt any class of transactions from any 
provision of the Act if the exemption is necessary or appropriate in 
the public interest and consistent with the protection of investors and 
the purposes fairly intended by the policy and provisions of the Act. 
Under rule 17d-1, in passing on applications for orders under section 
17(d), the Commission considers whether the company's participation in 
the proposed transaction is consistent with the provisions, policies, 
and purposes of the Act, and the extent to which the participation is 
on a basis different from or less advantageous than that of other 
participants.
    6. Applicants request an order under sections 6(c), 17(b), and 
17(d) of the Act and rule 17d-1 under the Act to permit the Affiliated 
and Other Funds to purchase Shares of the New Fund. Applicants submit 
that the terms of the proposed transactions are reasonable and fair and 
do not involve overreaching because the Affiliated and Other Funds will 
be treated like any other shareholder in the New Fund and will purchase 
and redeem Shares on the same terms as Shares are purchased and 
redeemed by other investors in the New Fund. Applicants also state that 
the New Fund will not impose any sales load, redemption or asset-based 
distribution fee, and that PaineWebber or Mitchell Hutchins, as 
applicable, will waive advisory fees paid to it by an Affiliated Fund, 
to the extent necessary to avoid a duplication of advisory fees for the 
Affiliated Funds as a result of their investment in the New Fund. 
Finally, applicants state that the New Fund will comply with the 
provisions of the Act relating to prohibitions on affiliated 
transactions, leveraging and the issuance of senior securities, and 
rights of redemption.
    7. Applicants submit that investment in the New Fund of Cash 
Collateral and Uninvested Cash will be consistent with the policy of 
each Affiliated or Other Fund, as recited in its registration

[[Page 36006]]

statement and reports filed under the Act. Applicants state that any 
Affiliated or Other Fund that complies with the requirements of rule 
2a-7 under the Act will invest only in a Money Market Series of the New 
Fund; and that the investment of Cash Collateral in the New Fund will 
be conducted in accordance with the SEC staff's securities lending 
guidelines.
    8. Applicants request an order under sections 6(c) and 17(b) of the 
Act to permit the Affiliated Broker-Dealers to engage in principal 
transactions with the Other Funds. Applicants state that each such 
transaction between an Other Fund and an Affiliated Broker-Dealer will 
be the product of arms-length bargaining because each Other Fund has 
its own investment adviser that is not controlled by the Affiliated 
Broker-Dealer and that, in economic reality, may be a competitor of the 
Affiliated Broker-Dealer.
    9. Applicants request an order under sections 6(c) and 17(b) of the 
Act exempting them from section 17(a)(3) of the Act, and under section 
17(d) of the Act and rule 17d-1 under the Act, to permit the Affiliated 
Broker-Dealers to be Borrowers of portfolio securities from an 
Affiliated or Other Fund. Applicants state that each loan to an 
Affiliated Broker-Dealer by an Affiliated Fund will be made with a 
spread that is no lower than that applied to comparable loans to 
unaffiliated broker-dealers.\3\ In this regard, applicants state that 
at least 50% of the loans made by the Affiliated Fund, on an aggregate 
basis, will be made to unaffiliated Borrowers. Moreover, all loans will 
be made with spreads that are no lower than those set forth in a 
schedule of spreads established by directors/trustees of each 
Affiliated Fund who are not ``interested persons'' as defined in 
section 2(a)(19) of the Act (the ``Disinterested Directors'') (the 
``Lending Committee'') and all transactions with the Affiliated Broker-
Dealers will be reviewed periodically by the officers of the Affiliated 
Funds and by the Boards of the Affiliated Funds. Lastly, the Lending 
Committee will review detailed quarterly compliance reports on all 
lending activity.
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    \3\ A ``spread'' is the compensation earned by a fund, as 
lender, from a securities loan, that is in the form either of a 
lending fee payable by the borrower to the fund (when non-cash 
collateral is posted) or the excess--retained by the fund--over a 
rebate rate payable by the fund to the borrower (when cash 
collateral is posted and then invested by the fund).
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    10. Applicants also request an order under section 17(d) of the Act 
and rule 17d-1 under the Act to permit PaineWebber to receive lending 
agency fees from the Other Funds based on a share of securities lending 
revenues, and Mitchell Hutchins to receive fees from the Other Funds 
for providing administrative and management services relating to the 
Cash Collateral. Applicants note that, absent the existence of New Fund 
and the ownership of 5 percent or more of the Shares of New Fund by an 
Other Fund, PaineWebber and Mitchell Hutchins may receive these fees 
from an Other Fund. Applicants thus assert that it is appropriate to 
permit PaineWebber and Mitchell Hutchins to receive the fees from the 
Other Funds because the affiliation between PaineWebber and Mitchell 
Hutchins and the Other Funds is technical in nature and the fees will 
be the product of arms-length bargaining.

B. Section 17(e)

    11. Section 17(e)(2) of the Act makes it unlawful for any 
affiliated person of a registered investment company, or any affiliated 
person of the affiliated person, acting as broker in connection with 
the sale of securities to or by the investment company, to receive from 
any source a commission for effecting the transaction which exceeds (a) 
the usual and customary broker's commission if the sale is effected on 
a securities exchange, (b) 2 percent of the sales price if the sale is 
effected in connection with a secondary distribution of the securities, 
or (c) 1 percent of the purchase or sale price of the securities if the 
sale if otherwise effected.
    12. Applicants request an order under section 6(c) of the Act 
exempting them from section 17(e)(2) of the Act as it may apply to 
transactions by Other Funds that are brokered by an Affiliated Broker-
Dealer. Applicants state that an investment adviser for an Other Fund 
would have no interest in preferring or benefiting an Affiliated 
Broker-Dealer at the expense of the Other Fund. Applicants thus assert 
that brokerage transactions by the Affiliated Broker-Dealer for the 
Other Funds do not raise the concerns underlying section 17(e)(2).

Applicants' Conditions

    Applicants agree that any order of the Commission granting the 
requested relief will be subject to the following conditions:

Borrowing of Portfolio Securities

    1. The Affiliated Funds, on an aggregate basis, will make at least 
50% of their portfolio securities loans to unaffiliated Borrowers.
    2. An Affiliated Fund will not make any loan to any Affiliated 
Broker-Dealer unless the income attributable to such loan fully covers 
the transaction costs incurred in making the loan.
    3. a. All loans will be made with spreads no lower than those set 
forth in a schedule of spreads which will be established and may be 
modified from time to time by each Affiliated Fund's Lending Committee 
(the ``Schedule of Spreads'').
    b. The Schedule of Spreads will set forth rates of compensation to 
the Affiliated Funds that are reasonable and fair and that are 
determined in light of those considerations set forth in the 
application. The Schedule of Spreads and any modifications will be 
ratified by the full Board and by a majority of the Disinterested 
Directors.
    c. The Schedule of Spreads will be uniformly applied to all 
Borrowers of the Affiliated Funds' portfolio securities, and will 
specify the lowest allowable spread with respect to a loan of 
securities to any Borrower.
    d. If a security is lent to an unaffiliated Borrower with a spread 
higher than the minimum set forth in the Schedule of Spreads, all 
comparable loans to Affiliated Broker-Dealers will be made at no less 
than the higher spread.
    e. The securities lending program for each Affiliated Fund will be 
monitored on a daily basis by an officer of each Affiliated Fund who is 
subject to section 36(a) of the Act. This officer will review the terms 
of each loan to Affiliated Broker-Dealers for comparability with loans 
to unaffiliated Borrowers and conformity with the Schedule of Spreads, 
and will periodically, and at least quarterly, report his or her 
findings to the Affiliated Funds' Lending Committees.
    4. The Boards of the Affiliated Funds, including a majority of the 
Disinterested Directors, (a) will determine no less frequently than 
quarterly that all transactions with Affiliated Broker-Dealers effected 
during the preceding quarter were effected in compliance with the 
requirements of the procedures adopted by the Boards and the conditions 
of any order that may be granted and that such transactions were 
conducted on terms that were reasonable and fair; and (b) will review 
no less frequently than annually such requirements and conditions for 
their continuing appropriateness.
    5. The Affiliated Funds will maintain and preserve permanently in 
an easily accessible place a written copy of the procedures (and any 
modifications thereto) which are followed in lending securities, and 
shall maintain and preserve for a period of not less than six years 
from the end of the fiscal year in which any loan occurs, the first two

[[Page 36007]]

years in an easily accessible place, a written record of each loan 
setting forth the number of shares loaned, the face amount of the 
securities lent, the fee received (or the rebate rate remitted), the 
identity of the Borrower, the terms of the loan, and any other 
information or materials upon which the finding was made that each loan 
made to Affiliated Broker-Dealers was fair and reasonable, and that the 
procedures followed in making such loan were in accordance with the 
other undertakings set forth in the application.
    6. The total value of securities loaned to any one broker-dealer on 
the approved list will be in accordance with a schedule to be approved 
by the Board of each Affiliated Fund, but in no event will the total 
value of securities lent to any one Affiliated Broker-Dealer exceed 10% 
of the net assets of the Affiliated Fund, computed at market.

Investment of Uninvested Cash and Cash Collateral

    7. The Affiliated Funds, New Fund, and any future Affiliated Fund 
that relies on the order will be advised by PaineWebber, Mitchell 
Hutchins, or any entity controlling, controlled by, or under common 
control with, PaineWebber or Mitchell Hutchins.
    8. A majority of the Board of an Affiliated Fund (including a 
majority of the Disinterested Directors), will initially and at least 
annually thereafter determine that investing Uninvested Cash and Cash 
Collateral in Shares of New Fund is in the best interests of the 
shareholders of the Affiliated Fund.
    9. With respect to any Affiliated Fund that invests in Shares of 
New Fund, PaineWebber or Mitchell Hutchins will reduce its advisory fee 
charged to the Affiliated Fund in an amount (the ``Reduction Amount'') 
equal to the net asset value of the Affiliated Fund's holdings in New 
Fund multiplied by the rate at which advisory fees are charged by 
Mitchell Hutchins to New Fund. Any fees remitted or waived pursuant to 
this condition will not be subject to recoupment by PaineWebber or 
Mitchell Hutchins or their affiliates at a later date.
    10. Investment in Shares of New Fund by an Affiliated or Other Fund 
will be consistent with the Affiliated or Other Fund's investment 
objectives and policies.
    11. An Affiliated or Other Fund's Uninvested Cash and Cash 
Collateral will be invested in a particular investment series of the 
New Fund only if that investment series invests in the types of 
instruments that the Affiliated or Other Fund has authorized for the 
investment of its Uninvested Cash and Cash Collateral.
    12. Each investment series of the New Fund that uses the amortized 
cost method of valuation as defined in rule 2a-7 under the Act will 
comply with rule 2a-7. With respect to such series, Mitchell Hutchins 
will adopt and monitor the procedures described in rule 2a-7(c)(6) 
under the Act and will take such other actions as are required to be 
taken pursuant to such procedures. An Affiliated or Other Fund may only 
purchase Shares of an investment series of the New Fund using the 
amortized cost method of valuation if Mitchell Hutchins determines on 
an ongoing basis that the investment series is in compliance with rule 
2a-7. Mitchell Hutchins will preserve for a period not less than six 
years from the date of determination, the first two years in an easily 
accessible place, a record of such determination and the basis upon 
which the determination was made. This record will be subject to 
examination by the Commission and the staff.
    13. An Affiliated or Other Fund that complies with rule 2a-7 under 
the Act will not invest its Cash Collateral or Uninvested Cash in an 
investment series of the New Fund that does not comply with the 
requirements of rule 2a-7.
    14. The securities lending program of each Affiliated and Other 
Fund will comply with all present and future applicable Commission 
staff positions regarding securities lending arrangements.
    15. Each Affiliated or Other Fund will invest Uninvested Cash in, 
and hold Shares of, the New Fund only to the extent that the Affiliated 
or Other Fund's aggregate investment of Uninvested Cash in Shares of 
the New Fund does not exceed 25% of the Affiliated or Other Fund's 
total assets.

Operation of the New Fund

    16. The New Fund will comply as to each investment series with the 
requirements of sections 17 (a), (d), and (e), and 18 of the Act as if 
the New Fund were a registered open-end investment company. With 
respect to all redemption requests made by an Affiliated or Other Fund, 
the New Fund will comply with section 22(e) of the Act. Mitchell 
Hutchins will, subject to approval by the Trustee, adopt procedures 
designed to ensure that the New Fund complies with sections 17 (a), 
(d), and (e), 18, and 22(e) of the Act. Mitchell Hutchins will also 
periodically review and periodically update as appropriate the 
procedures and will maintain books and records describing the 
procedures, and maintain the records required by rules 31a-1(b)(1), 
31a-1(b)(2)(ii), and 31a-1(b)(9) under the Act. All books and records 
required to be made pursuant to this condition will be maintained and 
preserved for a period of not less than six years from the end of the 
fiscal year in which any transaction occurred, the first two years in 
an easily accessible place, and will be subject to examination by the 
Commission and the staff.
    17. The net asset value per share with respect to Shares of the New 
Fund will be determined separately for each investment series by 
dividing the value of the assets belonging to that investment series, 
less the liabilities of that investment series, by the number of Shares 
outstanding with respect to that investment series.
    18. The Shares of the New Fund will not be subject to a sales load, 
redemption fee, asset-based sales charge, or service fee (as defined in 
rule 2830(b)(9) of the Conduct Rules of the National Association of 
Securities Dealers).
    19. Each Affiliated or Other Fund will purchase and redeem Shares 
of the New Fund as of the same time and at the same price, and will 
receive dividends and bear its proportionate share of expenses on the 
same basis, as other shareholders of the New Fund. A separate account 
will be established in the shareholder records of the New Fund for the 
account of each Affiliated or Other Fund.
    20. The New Fund will not acquire securities of any investment 
company in excess of the limits contained in section 12(d)(1)(A) of the 
Act.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-17473 Filed 6-30-98; 8:45 am]
BILLING CODE 8010-01-M